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Smooth is Smart.Bullwhip, Inventory, Fill-Rates and the Golden Ratio

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  • S. Disney
  • I. Farasyn
  • M. Lambrecht
  • D. Towill
  • W. Van de Velde
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    Abstract

    A major cause of supply chain deficiencies is the bullwhip effect. This effect refers to the tendency of the variance of the replenishment orders to increase as one moves up a supply chain. Supply chain managers experience this variance amplification in both inventory levels and replenishment orders. As a result, companies face shortages or bloated inventories, run-away transportation and warehousing costs and major production adjustment costs. In this article we analyze a major cause of the bullwhip effect and suggest a remedy. We focus on a unique replenishment rule that is able to reduce the bullwhip effect. In general, bullwhip reduction may have a negative impact on customer service due to inventory variance increases. Our analysis shows that bullwhip can be satisfactorily managed without unduly increasing stock levels to maintain target fill rates.

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    File URL: http://www.econ.kuleuven.be/tem/jaargangen/2001-2010/2005/TEM%202005-2/TEM-2_05_Sydney.pdf
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    Bibliographic Info

    Article provided by Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen in its journal Review of Business and Economics.

    Volume (Year): L (2005)
    Issue (Month): 2 ()
    Pages: 167-186

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    Handle: RePEc:ete:revbec:20050201

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    Postal: Naamsestraat 69, 3000 Leuven
    Web page: http://www.econ.kuleuven.be
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